Households’ purchasing power grows rapidly

Households’ purchasing power is growing rapidly

In the 4th quarter of 2014, the average monthly gross wages were 1,039 euros (+5.3%, year on year). In 2014 as a whole, average gross wages increased to 1,001 euros (+5.5%).

The deceleration in the growth of wages was anticipated as enterprises’ economic results were modest last year. During the first nine months of 2014, the latest data we have currently, enterprises’ sales and total costs decreased by around 1%, total profits remained at around the previous year level, but labour costs increased by 8%. This trend is unsustainable in a longer term.

Another possible reason behind the deceleration in the growth of wages was the introduction of the labour registration obligation from July 1st, which increased the official number of employees in sectors, where wages are smaller (tourism, domestic trade, construction, etc.).

The growth of wages was broad-based in 2014, reaching 5% to 10% in three quarters of sectors. At the same time, the growth of employment varied substantially. For example, in finance and insurance, wages increased by 10% last year, while the number of employees decreased by 20%.

In 2015, gross wages will probably grow a bit less than in 2014 due to weak external economic environment. Minimum wages will grow again 2 times faster than the average wages in 2015 (+10% and +5%, respectively), lifting wages at the lower end. Households’ purchasing power will rise substantially this year, as labour income taxes were lowered by around 1.6 percentage points in January and inflation will be low. Higher wages of public workers and a rise in pensions and other social benefits will also support private consumption and thereby, economic growth.

Source: Swedbank

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